In a recent report by the Securities and Exchange Commission, researchers at the University of California, Berkeley found that cryptocurrency investments, including those that use cryptocurrency to trade and buy securities, are highly vulnerable to manipulation.
“Cryptocurrency-related investments could become the new gold standard for investment managers, because they are typically highly liquid, low-risk investments with relatively low cost of ownership and low transaction costs,” the researchers wrote.
“The risks of these investments are magnified for high-volume and volatile investors.”
The researchers also said the lack of transparency and the fact that there are no rules or regulations in place for cryptocurrency investments make it difficult for people to determine if they are buying and selling securities on the open market or through exchanges.
“It’s very hard to see if a company is an accredited investor, if they’re an accredited broker, and so on,” said Sarah Sexton, a senior analyst at the Institute for the Study of the Future.
“We have no idea how much they’re buying and where they’re getting their money.”
Sexton said it’s difficult for investors to identify the investment and the issuers they’re investing in if the market is opaque.
“If you have to know the difference between a legitimate and a fake stock, you’re kind of out of luck,” she said.
“There’s no way for investors with any degree of knowledge to be able to tell the difference.”
The SEC also found that nearly half of the companies surveyed had “poor disclosure practices,” which means they failed to disclose a company’s total assets, as well as whether it has a financial disclosure form or other disclosure requirements.
“Investors should always keep their eyes peeled for potential scams and make sure their investments are backed by reputable, well-qualified investors,” Sexton added.
“I don’t think there’s any doubt that crypto investing is going to be a big part of the future.”